New capital on the horizon

There have recently been significant inroads made in creating new sources of financing for non-profits and social ventures in Canada. Causeway hosted two discussions over the past month to flesh out the development of potential investment vehicles.

Below, I provide context for these conversations and offer resources for further understanding. I’ll continue to use this blog to chronicle the main developments of these funds in an attempt to keep you and the mounting number of social financiers up-to-date.

Unfortunately, current investing and funding models are ill equipped to cope with the tsunami of fiscal and demographic pressures building in Canada.

In response, a social finance approach encourages market forces to deliver social, environmental and economic dividends while building up social sector infrastructure. MaRS’ 2009 Social Venture Finance white paper is an excellent source of background information.

In early December, Jed Emerson – the father of blended value investing – spoke at MaRS as part of a panel of mainstream finance, foundation and non-profit think-tank leaders. The challenge was simple: how can Canada, in the wake of clear advances in the US and UK, develop social purpose investment vehicles? A podcast and a complete summary report of the event are available. Stemming from the discussion were five potential avenues for fund exploration:

Loan and Investment Fund

Community Investment Vehicle

Fund of Funds Product

Social Venture Fund

Program Related Investment Fund

Drawn from the Jed Emerson event and the follow-up discussion held recently in January, here is a brief background of the proposed funds:

Using private sector (banks) and philanthropic capital, the fund would act as an intermediary, providing access to capital for organizations that traditionally have had a difficult time securing financing loans and financing

The fund will also work with nonprofits to build financial capacity

Next Steps:

Finalize a business plan proposal

Solidify financing to develop a detailed business and operational plan

Find investors for the fund

Recruit experienced experts from the financial sector or potential investors to act as part of an advisory panel

A product to channel investment dollars from individuals and institutional investors

Invested nationally in revenue generating social enterprise owned and operated by nonprofits

The Social Investment Organization, the trade association for the socially responsible investment industry is looking to develop the product within the next 18 months

SIO is looking for experienced consultant(s) to conduct two projects:
1) determine the size of the target pool of social enterprise projects, and
2) develop a vehicle to invest in an underlying bundle of social enterprise projects.

Next Steps:

SIO, with the oversight on an advisory panel is outsourcing the development of this fund to (an) experienced consultant(s). A Request for Proposal(.doc) has been sent out.

The idea of a challenge or campaign has been proposed to raise capital within the foundation community for a notional fund that could catalyze creation of new financial products serving the mission-based investing market (although at first such a capital raise would focus on private and community foundations, others, such as corporate foundations and even government, could be drawn in as providers of first-loss capital)

With 96.5% of foundation assets typically not aligned to mission (obligatory disbursements are only 3.5% though many foundations exceed that), foundations have been called-out to make a greater impact with a greater portion of their capital

There have been suggestions to emulate the US campaigns for “More for Mission”, encouraging Program Related Investments (PRIs) and Mission Related Investments (MRI). One role model has been the JW McConnell Family Foundation whose board recently passed policy to dedicated at least 5% of capital to mission related investing

Publicize the resulting pool of capital supporting the emerging social fund marketplace

One question that continues to come up is around the landscape in Canada to support social funds. The main concerns tend to cluster around appetite for risk and the potential size of deal flow. Research from coast to coast provides examples of social finance at work.

In Peter Elson’s recent research paper, “Building Capital, Building Community”, he and his co-authors explore the contrast between Ontario’s enterprising nonprofit sector and Quebec’s social economy while providing a lay of the land for current and historic deal flow.

We are at a very interesting junction within the social finance realm nationally; these new investment vehicles have the potential to greatly increase the amount of private investment capital flowing to social purposes. Stay tuned for more information about these initiatives or contact me if you are interested in learning more or contributing in some way.